Discount Rate Simulation Spreadsheet (CORE Econ)
CORE Econ offers an educational spreadsheet for simulating the impact of various discount rates on present value. This tool calculates the present value of $1 for future periods of 1, 10, 50, and 100 years. It facilitates a comparison among four different discount rates. Three are fixed for reference: a zero rate, the rate from the Stern Review, and the one proposed by William Nordhaus. The fourth rate is customizable, allowing users to select a rate they deem suitable for evaluating future climate change policies via a slider.
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Discount Rate Simulation Spreadsheet (CORE Econ)
The Challenge of Maintaining Collusion
A government is evaluating a major climate mitigation project that costs $50 billion today but is projected to prevent $1 trillion in environmental damages 100 years in the future. Advisor X recommends using a 1.4% rate to evaluate the future benefits, while Advisor Y recommends a 4.3% rate. Based on this information, which of the following conclusions is most likely correct?
Evaluating Climate Investment Strategies
Match each economic approach to valuing future climate change impacts with its corresponding characteristic and policy implication.
Discount Rates and Climate Policy Urgency
An economist who is highly concerned about the welfare of future generations and believes in taking strong, immediate action on climate change would likely advocate for a high discount rate when evaluating climate policies.
Discount Rates and Carbon Pricing
An environmental project is expected to yield a benefit of $1,000 in 50 years. Using a discount rate of 4.3% per year, the present value of this future benefit is approximately $____. (Round your answer to the nearest whole number and do not include the dollar sign or commas).
Three economic advisors are evaluating the same long-term climate change damage model to recommend a carbon price. They differ only in the annual rate they use to discount future damages. Advisor A uses a rate of 1.4%. Advisor B uses a rate of 4.3%. Advisor C uses a rate of 7.0%. Arrange the resulting carbon price recommendations from highest to lowest.
The Seawall Dilemma: Evaluating Long-Term Investment Advice
Evaluating Climate Investment Strategies
Match each economic approach to valuing future climate change impacts with its corresponding characteristic and policy implication.
Learn After
Evaluating a Long-Term Environmental Project
A government agency is evaluating two environmental projects. Project Alpha has a large upfront cost but is projected to yield a massive benefit in 100 years. Project Beta has a smaller upfront cost and is projected to yield a moderate benefit in 10 years. If the agency decides to switch from using a high discount rate to a low discount rate for its evaluation, what is the most likely impact on the projects' perceived value?
A policymaker believes that the well-being of future generations 100 years from now is nearly as important as the well-being of the current generation. To reflect this belief when calculating the present value of a long-term environmental project's benefits, the policymaker should select a high discount rate.
Analyzing the Effect of Time on Present Value
A student uses a spreadsheet to calculate the present value (PV) of receiving $1,000 at two different future points in time, using three different annual discount rates. The results are summarized in the table below.
Discount Rate PV of $1,000 in 10 Years PV of $1,000 in 100 Years 1% $905 $369 5% $614 $8 10% $386 <$1 Based on an analysis of this data, which of the following statements is the most accurate conclusion?
Choosing a Discount Rate for a Climate Adaptation Project
Match each type of discount rate with the statement that best describes its underlying assumption or policy implication for long-term projects like climate change abatement.
Manipulating a Present Value Simulation
An economist is calculating the present value of a future payment of $1,000 under four different scenarios. Arrange the following scenarios in order from the one that yields the HIGHEST present value to the one that yields the LOWEST present value. You do not need to perform the exact calculations.
A policy analyst is using a simulation spreadsheet to evaluate a long-term climate project that promises a significant environmental benefit in 100 years. The analyst's initial calculation, using a moderate discount rate, shows the project's present value is too low to justify its upfront costs. To argue in favor of the project by making its future benefits appear more valuable in today's terms, the analyst must adjust the spreadsheet's discount rate slider ____.